Cesare Mainardi must have the foresight to make Strategy& disappear into PwC

Headlining Mainardi’s Tenure

Editorial

Lets us begin by stating the obvious. Booz & Co. failed as an independent firm and was bought by PwC. Irrespective of the technicalities of the deal or how it is presented; Booz traded independence and a storied heritage for the basic privilege of barely surviving in one form or another.

A firm that once advised the US Ballistic Missile Nuclear Command on the optimal way to manage, structure and deploy the last line of defense for the free world at the height of the Cold War, was unable to survive the onslaught of a rapidly changing consulting market.

In that regard, the only one that counts, the era of Cesare Mainardi was a failure that led to the capitulation of Booz & Co.

It is a failure because Mainardi was unable, or unwilling, to shrink the firm back to its core to remain independent after the separation from Booz Allen Hamilton.This is not to say this capitulation was entirely Mainardi’s fault. The Booz & Co. separation occurred under the watch of then CEO Shumeet Banerji who clearly negotiated a deal which did not enable Booz & Co. to remain independent for too long. At the very least, Banerji handed over to Mainardi a badly wounded and under-capitalized firm.

Our editorials are read widely, including within the leadership of the major consulting firms. We know this because some firms write to us. These critiques may be hard to read but they have the sincere purpose of helping the firms improve. The history of management consulting is one of many great firms that either failed and/or were unable to survive as independent concerns, or were tainted by scandal. As you read this the firms are constantly making decisions, some of which may lead to the same fate.

Rather than getting upset about these pieces, it may be more useful to think about the real problems we discuss and how you can play a role in fixing them. It is not healthy for you to assume the firms are perfect nor are we attacking the firms by pointing out their areas for improvement. Other case interview preparation services choose to avoid these topics because it hurts their business. Our clients go on to join all these firms. We hope they take a hard look at what they find and try to make the firms even greater than they currently are.

That said, Mainardi could have done much more to preserve the firm’s independence.

When any consulting firm reaches a growth plateau, or keeps growing with a simultaneous drop in quality, the pot-bellied beast of a firm must unfortunately still be fed in terms of revenue.

It must still be fed since consultants in the weaker parts of the firm, which are probably tarnishing the firm’s image, must be paid and to pay them, the firm needs to actively seek out work to pay their salaries. It is usually work the firm no longer wants to do.

As a consequence, this continuous replenishment of sub-par work reinforces, and grows, the very same parts that should be shrunk. In other words, Booz & Co. was pursuing unhealthy growth that weighed it down.

This is a vicious and ultimately self-reinforcing cycle of destruction.

The solution to this problem is very simple. Yet, it is painfully difficult to execute because it requires incredible stamina, focus, effort and determination from the consulting firm’s leadership team. It takes remarkable fortitude on the part of the CEO to convince his peers to cull the parts of the business dragging the partnership down, free up capital tied to weak parts of the business and reinvest it in the core business.

To accomplish this turnaround of sorts, the partners need to not only forgo bonuses, they need to put money back into the business and work harder to convince clients that the necessary pruning does not forebode an impending death of the firm. Moreover, this is hard to control in the media since the the firm’s own consultants leave due to cost cutting measures and spread exaggerated tales of an imminent lack of eminence.

Partners who care about their salaries more than the firm do not like going through this. To be fair, who would go through this pain unless they really cared about the firm’s mission and values? For those partners who could not care and do not care, it is far easier to simply sell the firm. That is what the majority of Booz partners voted to do.

That is worth repeating. The majority of Booz & Co. partners did not believe their mission and values were worth taking a salary cut, and/or making an equity investment, to protect.

Given this, why should Booz client’s believe the firm is different if the partners of the firm do not believe that difference is worth protecting with an additional mortgage, or two, on their homes?

This is the tragedy of what happened to Booz & Co. PwC is a great firm and we are not in any way criticizing Booz because they sold themselves to PwC. It is tragic because Booz sold themselves at all, irrespective of who bought them.

Yet, by the grace of PwC’s leadership, Mainardi has been given a lifeline that may very well burnish his legacy and lead to the creation of a new consulting giant.

The single greatest problem with bringing so-called strategy consultants together with auditors is that the consultants look down on the auditors with a we-are-better-than-you-are-so-leave-us-alone attitude. If acquired strategy firms act this way, can you imagine how strategy firms act in a merger of semi-equals? They would be unimaginably insufferable.

The worst thing that could happen at Strategy& is if the suicidal desire to preserve the old Booz and keep it apart from PwC, while operating within PwC, will be satisfied. To an extent, this is happening.

Even if the acquisition was designed to temporarily keep Strategy& apart, it will only prolong the animosity between Strategy& and PwC partners, generate destructive uncertainty and lead to the slow departure of talented consultants. Mainardi needs to resist that push from many Strategy& partners. Yes, some of these possibly great Strategy& partners will leave but that is the necessary price to be paid for the greater good.

It is far better to initially have marginally weaker combined PwC / Strategy& teams that operate as a motivated group, versus entertaining selfish partners who implicitly sabotage the merger, to preserve their egos, by staffing pure Strategy& teams.

Mainardi needs to work aggressively to blend the teams in a way that diffuses Strategy&’s ideas, approaches and methodologies into the DNA of PwC so that consulting across the firm improves. He needs to share Strategy& thinking, ideas and property as much as possible and as deep as possible into any PwC office that is interested.

The key measure is not whether the quality of the old Booz has deteriorated. It will and should deteriorate in the short to medium term if PwC is serious about playing the long game. The key measure is whether the overall quality of PwC’s broader consulting business has improved. This acquisition will fail if the objective is to create an island of Booz strategy consultants within an ocean of PwC’s potential.

It is sobering to remember that no matter what happens, Booz is going to disappear. The Booz partners and consultants need to accept that. They sold the firm. They made that choice and need to accept the consequences. In 5 to 10 years we will no longer even be mentioning Booz, unless it is about a cruise with university students and beer. There is no point in striving to protect the old Booz within PwC when its fate is inevitable. The only thing to focus upon is ensuring PwC Consulting benefits in the long term.

Strategy& consultants have a tendency to hoard ideas from the PwC consultants. Anyone who looks down on another group does this, and strategy consultants have always looked down on the Big-4 consultants.That is how Booz consultants have been thinking for years and it is not as if their behavior magically changed overnight due to the acquisition. Humans are terribly slow to adapt their prejudices.

In fact, there are probably plenty of Strategy& consultants who think the acquisition will change nothing, because they are strategy consultants and the PwC consultants do not understand their business and, therefore, have no right telling them what to do.

Yet, hoarding allegedly prized strategy methodologies, because audit-centric consulting teams may incorrectly use them, will result in absolutely zero use of the material and create resentment. Sharing the material at least raises interest and builds excitement. After-all, ten percent incorrect use of the material is much better than zero percent correct use.

Moreover, PwC now owns the material and the firm. Things should change.

It comes down to the way Strategy& disperses its thinking within PwC. Crucially, the Strategy& staff tasked with training and seeding strategy within the PwC teams must be effective goodwill ambassadors. They must be selected both for their people skills and knowledge of management consulting. They must empower PwC to use the materials, ideas and methodologies; while making the PwC teams feel good about the process of learning.

In other words, emotionally stunted and socially myopic jerks need not apply for this role.

Mainardi needs to set the tone. He needs to find ways to leverage PwC’s enormous capabilities in corporate finance, technology, risk, audit and human capital to deploy teams that can solve problems in a way BCG and McKinsey cannot. Yes, as much as PwC consultants need to learn about Strategy& techniques, Strategy& consultants need to learn about PwC’s approach.

Learning works both ways, and the danger is that Strategy& consultants will think and act like PwC can add nothing to their strategy and operations thinking.

Corporate finance and corporate strategy both teach us that a firm must overwhelmingly deploy a unique point of differentiation to succeed. The Strategy& partners must avoid trying to be a mini-McKinsey, not only has that ship sailed – we are now in the space age, and the PwC partners need to move away from their conservative tendencies to only leverage what they know. As much as risk and compliance work pays the bills at PwC and is a sustainable revenue stream, who wants to go through life just paying the bills?

This is not about replicating BCG or McKinsey within PwC. This is about overtaking them by practicing management consulting in a way that is unique to PwC. That is something Strategy& and PwC need to develop together. It is not as easy as just plopping down Strategy& in the firm and saying, “Go fetch!” It will time and experimentation to develop this new interpretation of management consulting that should look nothing like what either firm was doing before the acquisition.

To build something new, PwC must learn the mistakes from past failures in management consulting acquisitions by audit firms. And if you are wondering which major acquisitions we are referring to, it is all of them. Every single one has failed. Sadly, the PwC integration of Strategy& is following that very same treacherous playbook which doomed every single major consulting acquisition.

Alas, at this rate PwC seems content to simply mimic Deloitte S&O.

PwC and Strategy& may position this integration as being different, and young consultants may be seduced by the repeated promises, but how is it different? Other acquisitions have led to the temporary retention of the acquired firm’s name. Other acquisitions have temporarily kept the businesses apart. And other acquisitions have done everything now happening with Booz.

If PwC does the same things, PwC will get the same result. This acquisition will fail on its current trajectory because everyone is expecting the old Booz to survive within PwC. That should not happen, could not happen and will not happen.

Leaving aside the implementation issues for a few minutes, the genesis of the transaction is deeply flawed for two reasons.

First, where is the differentiation? As Mainardi himself said, “We believe this positions us together as a ‘Category of One’ – the only global consulting team that’s figured out how to truly bridge the best of operational and strategy consulting.”

It’s only a category of one if you ignore the big blue elephant in the room with a green trunk. As Jim Moffatt, chairman and chief executive officer of Deloitte Consulting LLP, said during the announcement of the Deloitte takeover of Monitor, “Our ability to implement the advice we provide has always been a differentiator. This acquisition further enhances our ability to serve clients from strategy to execution.”

This seems more like a category of two. Maybe they hired the same PR firm to write the release?

It is worrying when firms routinely ignore their competitors and only compare themselves to the strategy firms. Ignoring a deep and entrenched competitor does not make the competitor magically disappear in the mind of a potential client.

Second, successful management consulting firms do not get acquired. They find a way to survive and preserve their independence, since independence is the key ingredient for unbiased results, which is the unrivaled foundation on which client trust is built.

Which major client will trust a Strategy& recommendation if there is even the faintest hint that the advice is skewed to protect the audit partners’ recurring revenue streams? The odor of bias is enough to turn away the most discerning client. Does this mean Strategy& will pursue the less discerning classes of capitalists?

Moreover, how will the work and zones of influence be split between audit, tax, corporate finance and consulting? Which practice’s needs will take precedence? The client’s needs should take precedence, but that is not going to happen here, especially since partner reviews are heavily skewed to sales.

No partner is going to give up the chance to make their sales quota’s in a firm so entrenched in bottom-line thinking.

Strategy consulting may have fancy analytic tools, but those tools only work when you have the independence to tell a client the truth as you see it. An audit-muzzled strategy consultant is unable to do that.

This is something Bain & Co. understood in the 1990’s when Mitt Romney stepped in as CEO to lead the firm back from the brink.

Bain did not sell. Bain did not capitulate. Bain shrunk to survive. Bain is unique in that regard.

Romney deserves a lot of praise for fixing Bain’s mistakes.

PwC has basically bought a strategy firm that, through the act of agreeing to the acquisition, has given up the one thing that allowed it to be a prized acquisition in the first place; its independence.

Yet, the check as cleared and PwC must work with what it has. Mainardi must push for deeper integration between Booz and PwC. It will take a significant amount of patience, stamina and discussions to paint such a vision of collaboration and get teams to work in this way. Yet, it must be done or this merger too shall fail. As much as PwC acquired Booz, the acquisition agreement is merely a legal construct that will have zero influence on blending the cultures.

Now that the ink on the contract has dried, Mainardi needs to ensure Strategy& is accepted into PwC’s culture.

By their nature, management consultants are not very humble, yet Mainardi must lead by example and demonstrate sincere humility as he seeks the privilege, and not the right, to leverage PwC’s relationships and abilities. Acquisitions are not about change management, migration maps or even implementation plans.

That is modern management witchcraft which consultants prepare to make it look like they are adding value. There is a more suitable indicator of an acquisition’s success.

A successful acquisition will occur when a Booz and PwC partner who happen to be sitting together can have a pleasant discussion and come out of that interaction with a personal belief that the legal transaction is worth honoring with sincere personal transactions on a daily basis.

Acquisitions are about trust.

Yet, they need to be managed like a financial option. We generally apply financial options thinking before a deal is done: from the time between when an initial option is taken, like the right to buy an oil field, to when the option is exercised, when the oil field is purchased.

However, after a company makes an acquisition to enter a new business, every subsequent investment to build up the business should also be viewed through this real options lens. In other words, the subsequent investments to expand a business after the acquisition are usually far larger than the investment to enter the business.

Crucially, in this way of thinking, the Booz acquisition can be seen as an option for the right, but not the certainty, that PwC will invest even more money into the strategy business.

Why this is important to the Strategy& partners and consultants?

If the Strategy& partners view the merger as the culmination of their survival efforts, they are sadly mistaken. It is best to think of the initial purchase price of Booz as a very expensive option that PwC has taken on building a major consulting practice. More investments will be needed for consulting and none of them are guaranteed.

As PwC learns more about Strategy&, its business model and capabilities, and make no mistake about this – it is still learning, PwC is continuously deciding if it should make more, less or no investments.

In fact, every budget meeting after the merger is a moment when PwC decides if it should walk away from the option by stopping further investments and letting the integration meander along, or act by making larger and larger investments.

PwC will make more investments if the Strategy& consultants can show the merger is working. That is why there is a clear incentive to see the merger as just the start. There must be a continuous commitment to creating a successful business that justifies further investment in this practice.

True success for Mainardi is when he retires and we no longer have PwC Strategy&. We simply have a stronger and unique PwC Consulting with no clear boundaries. Sadly, history shows us this is unlikely to happen since the old Booz firm is already ring-fencing itself, thereby presenting a target for the PwC antibodies.

Booz & Co may very well have been acquired, but can Mainardi orchestrate an integration process that leads to a better firm? We sincerely hope so but we see little evidence of this.

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Comments

14 responses to PWC Strategy& CEO – Cesare Mainardi

Thanks for the response and sharing your experiences with Strategy&. I really want to say everything will work out for you but I as yet do not actually know what your career plans and learning goals are.

I think the Mainardi editorial and new editorial speak to what it means for Strategy& consultants.

Strategy& will be severely hampered since it cannot be a proper/independent advisor within a audit firm. I noticed in your description above you were quick to point out the previous employers of the new Strategy& practice you have – Bain, OW, RB etc. That shows a bias in assuming these consultants technical skills will help Strategy& in your region become successful. It will not and I have explained this across all the editorials.

Culture, values and independence matter far more than technical skills.

For now PwC will give Strategy& some slack since the acquisition is new and PwC does not believe its fragmented legal structure and control over Strategy&’s independence is a problem. In fact, PwC probably believes those are its strengths.

Yet, this will fail and as soon as PwC sees less than stellar performance from Strategy& they will start reigning in spending etc. Strategy& will end up being suffocated and this will accelerate its fall.

Slowly Strategy& will become merged more and more into PwC until eventually PwC Consulting will be slightly stronger through the acquisition and Strategy& will no longer exist.

This is a very thought provoking and disturbing (as it should be) article on one of the hottest discussions revolving around strategy house acquisitions by giant firms lately. Thanks for your valuable comments on what the future likely holds for PwC Consulting and Strategy&.

I would like to take this discussion one step further on what this means for current and prospective Strategy& consultants (working under its P&L and differentiated compensation policy) for the next 18 to 24 months. I was internally hired for Strategy& and would like to focus on what i do best, i.e. my work. But given these questions regarding future uncertainty, i can’t help but wonder what the future holds for me and my colleagues at Strategy& and PwC Consulting? (and how you foresee the transition will take place)

To provide you a brief background: In my home country, Booz & Co was almost non-existing (only through a strategic alliance agreement with a local consulting firm) prior to its global acquisition. Following the acquisition, our local PwC partnership decided to create a Strategy& presence and its team composed of very limited internal hires from PwC Consulting strategy practice (initiated through PwC Consulting Directors’ recommendation followed by 3-4 interviews with former Booz principals & partners from different offices) and seasoned consultants from different strategy houses such as Bain, Oliver Wyman and Roland Berger as well as prominent consulting firms such as Accenture and Peppers & Rogers.

As a long-time, former employee of Booz&Co who lived through the early months of Strategy&, I would largely agree on the theses of this article which I find is well written. I have worked across different regions of Booz across many years and largely agree with the editorial in the way I think this acquisition is going to unfold. Let me start by saying that most people who left Booz&Co did so NOT because of PwC but because of the absolute disgust in the leadership of Booz&Co. You do not sell a partnership – period. The Board and Senior Partners who held the majority of the firm’s equity had lost the moral compass and values that defines good governance, leadership, partnership values and good old-fashioned ethics. The deal could have been constructuted in many different ways that could have truly created a ‘category of one’, retained many of the people who left and geninuely created a new breed of young leaders who wanted to carry the firm for the next century. We heard millions of times from the leadership during the pre-closure rhetoric that PwC will put in significant investment in the new firm towards growth. Have we ever asked the Senior Partners on how much of $750-800million they received from PwC was re-invested in the firm? Nada – Not 1 dollar. How much money from the Booz Allen Hamilton sell-out was invested back in the firm? Not much, else we would not be in a position to sell the firm. Mistakes happen BUT you do not make the same glaring mistake twice. I would have been fired if I repeated the same mistake twice on a project. So by the same token, the senior leadership should have been fired en masse for contemplating the deal. But the deal is now history and so will be Strategy&. You cannot expect a different outcome by being led by the same people who will repeat the same mistakes. As a long-time employee who believed in our collective future and was willing to make the investments despite the difficulties, the behaviour of Senior Partners and the Leadership was the final straw that led many people to leave. However, it would be unfair to just put the blame on Ceasre’s doorstep. The malaise had started with the disastrous leadership of Shumeet Banerji who was living in the fairytale world of Booz Capital, a failed merger with ATK, and a disastrously crafted Centurion strategy. Shumeet should take equal if not greater share for this sad outcome.

First, let me say that I really admire you taking the time to state your views. Some may call it “defending” Strategy& but I see nothing negative in doing that. It is good and should be wholly encouraged. More consultants should care enough to do so.

My summary response is: What is different about this acquisition that makes you think it will succeed?

Be brutally honest about that. Wanting it to succeed, hoping it will succeed, reading pieces saying it will succeed, does not mean it will succeed. This is a far different type of acquisition versus anything PwC has bought before. Yes, we want to see it work too, but we have to separate our emotions from the data, and we use meaningful data from multiple points across PwC and Strategy&. We cannot write an editorial about what we hope happens. We have to write an editorial about what we believe will happen based on the facts.

Note, that it is difficult to write a critical piece on someone like Cesare Mainardi or Dominic Barton whom we actually like and hope to see succeed. It is far easier to write a complimentary puff piece. We cannot ever allow personal views to cloud our judgement. We have to guard against it.

A key value of discussing these issues, is to get enough consultants riled up so that they ensure it does not happen. Sure, you may dislike the editorial, but it has certainly made you far more vigilant to preventing Strategy& from sliding. That is a good thing. It is serving part of its purpose.

If this editorial makes Strategy& and PwC take sufficient action to make this merger work, that is a great thing.

We do not mind being wrong in those types of situations, because the editorial is seeking that outcome.

Our editorials are hard-hitting but supported by facts. Your experiences may very well be different but that is just one additional fact to take into consideration. It does not change the trend. Now, we could have said everything was great with this merger, even though it was not. Such a piece would make everyone happy but we want to write editorials that matter and get firms to take action. Our pieces are not about supporting conventional wisdom. They are about taking the truthful angle, no matter how unpopular that may be.

No one will dare write a factual and critical piece on any major firm simply because many of those rankings have a business model which is dependent on taking advertising dollars or some kind of endorsement from the consulting firms being ranked. That is not a ranking. It is an advertisement.

We are different. Yes, we present the critical viewpoint but a good consultant should appreciate this because multiple viewpoints help to frame an issue. We take this role seriously and guard our ability to do so. Some readers may not like it but we see our ourselves playing a unique role in presenting an unvarnished view of things.

Do you honestly think we wake up in the morning and say, “Hmm, how do we push Barton or Canning’s buttons?” Really, who wants to do that. We can do better things with our lives than serve as a pseudo-consumer protection agency. In some ways we are forced to take the critical viewpoint since no one else will ever do it.

Can you find a factually critical view of the management consulting profession anywhere else? Name just one.

Every other ranking is pretty biased towards larger firms, conventional wisdom or blatantly protecting advertising revenue. Management consulting is an unregulated industry. There is no one ensuring applicants get the right decisions to make important, potentially life-altering, career decisions. We are certainly not perfect at that but being focused on the right issues is better than being 100% correct on the wrong issues.

Whenever our often counterintuitive pieces are attacked, we take solace in two things. First, many years ago we wrote a critical piece about Monitor Company citing all their problems and how they would fail. Despite Peter Walsh of Monitor pending strenuous denials at that time, they wrote an official rebuttal, everything we predicted came through.

Second, while we are very far away from being in the league of Bethany McLean, does anyone recall the days when Enron could do no wrong? No, now it is so easy to see all the faults at Enron, but there was a time when Enron was the Golden Child. It could do no wrong and to state otherwise meant you would be ignored. In March 2001, just as everyone including McKinsey was lauding Enron with prizes and prestigious mentions, McLean dropped this bombshell. Everyone, the investment community, the employees of Enron and the broader business world included, thought this lady was crazy. She was mercilessly attacked, called some pretty terrible names and harassed. Yet, at the time, her story sank without a trace until everything she pointed out turned to be true.

In fact, Enron’s share price continued rising after the story was published. The same way many may blissfully choose to ignore this editorial, does not change the validity of the underlying argument.

In effect, McLean wrote what many where thinking but too afraid to say and, especially, act on, since many needed Enron to succeed as they were financially or otherwise linked to the firm.

We are not at all accusing PwC Strategy& of fraud. Not even close to it. We are, however, stating that simply because our argument is uncommon does not make it wrong. It is well reasoned, factual and written because we care about uncovering the facts. It can stand a test of logic.

Yet, all we hear from PwC and Strategy& is “trust us” since we will make it work. Well, frankly that is not enough, especially, when the examples presented of the changes being made do not make much sense to us. We present a point-by-point discussion on this below.

Moreover, working at a company does not make anyone an expert in the company, since this is what you base your rebuttal upon. If this were true, consulting firms would be out of business since the employees of the client could see all the issues and fix them. Clearly that is not the case. Especially since employees have a vested interest to ensure their employers retain the prestige they have. That is why employee feedback is interesting but rarely uncovers massive issues at a business.

Therefore, in designing the rankings we are not trying to please anyone. We have no conflicts of interest and can tell the truth as we see it. That is worth protecting because this industry is masterful at marketing itself.

The NY Times published an excellent piece about how think tanks are being swayed through funding from foreign governments. Yet, another example of supposedly impartial people we should trust, yet they are writing what they are paid to write.

That is no different from what you read in Consulting Magazine etc. Puff pieces, advertorials as such, which glowingly discuss changes like the PwC-Booz & Co. acquisition all in the hopes of not hurting the advertising revenue those businesses need to succeed. Readers deserve to know what is happening. If a firm does well, they deserve praise. If firm can do much better, they deserve to be called out.

Management consulting is a privilege as a profession. No one has the right to serve any client and no one firm is bigger than the profession. This is what we believe and we are prepared to die for that belief.

It greatly upsets us when someone admits there is a values problem at their firm, but immediately dismisses that existential problem by focusing on all the other things they are doing to serve client. No one should be serving clients until their values are in order. That is the price to be paid for serving clients.

A great strategy consultant does not take much pride in her/his profession and title. She/he should be discreet and take pride from the impact of her/his work.

Values and the analytics are not mutually exclusive. To say the values are flawed but the analytics and client care/quality is present is wrong. Values drive everything.

That said, I can clearly see you not supporting the piece because we are advocating Strategy& being merged into PwC and losing its identity. We are also saying that this merger will probably not work. As a Strategy& consultant, you would probably not support that. How could you?

That, however, does not make the piece wrong. Unpopular, yes, but not wrong.

Here is the long response to your comment.

Your entire response is resting on one thing: “if” PwC and Strategy& make the tough choices. That is a big “if” and it will not happen. It will not happen since the businesses are incompatible as they are. One has to adjust and fit into the economics of the other.

So, to be very fair and with greatest respect to you, rather than giving these examples which are of just a few offices and really soon into the merger to judge, analyse how that “if” can be a “when’. That is everything that matters.

That said, thanks for the very well put together response. I would say however, that we take a global view looking at many different offices rather than just one observation point. Unless you are observing all offices? We are basing our observations on feedback from PWC and Strategy& partners, associates and managers, so many agree with this review. We have written partner feedback from both PwC and Strategy& partners guiding our editorials.

We also provide a partners perspective from our own experiences. We have been involved in such deals before and vetoed some of them, and even turned down offers to run some of these practices. While our views are not superior, they offer a unique top-down view.

While I respect your opinion, and value it, note that a lot of what you say is predicated on the promise it will work in the long-term. A lot of the enthusiasm you see now is people overlooking the small things since they think it will work in the long term. Like all relationships, small things soon become annoying when things do not go as planned.

That will happen here as well. Lots of consultants feel excited when these acquisitions take place. We have seen such enthusiasm all the way from Caggemini buying E&Y, Deloitte buying Monitor, and while they all seem promising at the start, they quickly unravel.

As we point out, PwC and Strategy& are doing nothing different from these acquisitions. How can they expect a different outcome?

Moreover, I can assure you that what you think as been promised to Strategy& by PwC is very different from what you are hearing. Like all mergers, the troops will not know real commitments made, because management needs to keep morale up. For all you know, if Strategy& does not raise revenue by 30%, PwC will cull massive numbers of consultants. You just will never know.

So, we agree with you that things look promising now, but we are pointing out real flaws that will occur and already exist, and will unravel in the long-term.

I will add point-by-point response as you raised them:

1 – Yes, you see value in getting the strategy team to work with the implementation and deals teams. We do as well. We are not debating that. We are asking if it can work. We raise this very same point with McKinsey as well. Though, the possible benefit is in the future. It has not happened yet on a sustainable basis. In all firms where strategists have worked with auditors, it has been difficult. Accenture largely left Anderson due to this reason. Deloitte still has this problem. The examples you have provided, while I am sure they are correct, are generally of weaker management consulting outfits blending into strategy. A high-end strategy unit needs to have certain things run its way and this will bring them into conflict with the audit partners. Sure, you have not seen it yet, because Strategy& has just arrived. Give it time and it will occur.

2 – You say you disagree but you make the point, which supports our argument. Strategy& cannot manage the conflict and has to withdraw from certain client. Withdrawal is not the solution as you seem to imply. Strategy firms need to serve most major clients in a sector to develop skills, gain best practice etc. The fact that Strategy& is not serving some clients is a problem. It is not the solution.

What PwC and Strategy& are doing now is not solving the conflict problem, they are avoiding it. When they learn to work together at one client, without compromising their values, then they have solved the problem. And, the Strategy& partners may accept giving up some clients now, but they will soon resent it.

Finally, it does not matter if a CEO now wants to retain Strategy&, as you indicate. The issue is whether in closed door discussions the Strategy& partners can challenge the audit partners to say and do things which may upset a client. The point you raised does not in any way indicate this is happening.

3 – May I suggested this is probably happening just in your office in a few cases, unless you have exposure to every engagement going on. And of course, the partners and managers will say this because it makes it look like the merger is working.

What about Strategy& in the Middle East, Russia etc? Some where very strong practices, but now simply falling apart. Again, I respect your opinion provided it is representation of all of Strategy& and not just your legal practice.

If you are saying everything is just fine in the US or UK, and you really do not know what is happening in other offices, then that raises issues about how successful this merger will be in building a global practice.

4 – This does not happen. Again, I believe you are talking about sharing within your legal practice and few sister practices. We have sufficient examples from numerous other offices that disagree with this. Moreover, you make the very same point we raise that the Strategy& partners feel some PwC partners may inadequately use the material, and we say, in the long term, this does not matter.

5 – You ask why Strategy& should be blended seamlessly into PwC. Really, what is the alternative? Was Strategy& expecting to be “independent” within PwC? How would that work? Has that ever worked in management consulting within an audit firm? If Strategy& wanted to be independent it should not have sold itself. Period

By selling Booz to PwC, it is no longer about what is good for Booz, but what is good for PwC in the long term. They are the acquirer, and even though it should be about the clients, that is not how decisions are going to be made in an audit firm.

And the sad fact of the matter is that what is good for PwC might not be taking the risk of going all out after McKinsey. That is suicidal and at not at all necessary. Who needs another McKinsey, BCG or even Bain? The last time we looked they were doing a fine job, bar some speed bumps. We would argue it is not necessary.

Strategy& will not survive trying to be a mini-McKinsey and massive value will be destroyed going down that path. Jobs will be destroyed and PwC may be set back by years from the ill-will generated. Before you think this is not possible at PwC, speak to top-tier consulting outfit partners who were once acquired by audit firms. History repeats itself since the underlying economics are the same and the drivers are the same.

A better path is to build something along the lines of Deloitte which does some types of strategy work and operations, but not in the way McKinsey does it. PwC Consulting + PwC Strategy& should set their sights on taking on Deloitte S&O. That is a meaningful and worthy goal.

Is it worth risking everything for a goal no other acquisition has ever achieved, or is it about going for what is attainable?

We remind you of this line from the editorial:

“In fact, there are probably plenty of Strategy& consultants who think the acquisition will change nothing, because they are strategy consultants and the PwC consultants do not understand their business and, therefore, have no right telling them what to do.”

Much of your comments support this point we are making.

You cannot have a proper strategy firm within an audit firm. The culture and values conflict. One has to give. We have discussed this extensively previously so no point going into it again. You can try to do it, but it will ultimately fail and it is not enough, to say we tried and failed. It is better to plan to integrate the firms more closely. You are working on the assumption this will work, to keep Strategy&, largely as a distinctive and separate entity within PwC. It will never happen.

Finally, PwC basically made the acquisition at the start of a market revival. I can assure you that anything can be overlooked when revenue is growing. Lets see how long this lasts when things change and the market collapses again. There are always mini-recessions and the next one is probably about 3 to 7 years away. If the Booz partners sold out their firm in a recession, why would they be willing to take salary cuts and the pain to protect a firm, PwC, that they hardly care about? They will not and that exodus will be painful to watch.

The greatness of a firm, is defined by how it acts in a crisis.

We still believe that PwC should manage this acquisition to create a great practice that is sustainable in the long-term.

I would respectfully argue that the facts are there in the editorial and our argument, but not choosing to accept them does not imply they are not facts. It is human nature to see what we want to see in the data.

I am fairly comfortable taking a bet with you that in 5 to 10 years, no one will remember Strategy& and this will collapse or become a very mediocre effort.

This too has happened before.I hope I am wrong but doubt it.

Because ultimately, values drive everything, and as you re-emphasized from our editorial, if the partners sold their values, they are building a firm on nothing. It is always about values to build a great firm and you are being very short-term focused in ignoring this to focus on the other less important things. If the values are missing, there is no point discussing anything else.

If this merger was about making PwC better, than we still recommend a full integration of Strategy& into PwC. If the merger was about making Booz & Co. better than they should not have sold the firm. They did and they need to accept the consequences.

We have to give the correct analyses, irrespective of how unpopular that may be. We owe our readers as much.

Of course, should we be wrong in 5 to 10 years, we will publicly print a retraction. Time will tell what will happen so this debate will be settled one way or another.

My advice is that if you dislike the scenario this editorial paints, it is not too late to do something about it. That is the purpose of an editorial.

Let me start by saying that in terms of quality and insight, Firmsconsulting is no.1 (in my mind) when it comes to values, the consulting industry and consulting methodologies. I read your articles and listened to your podcasts while applying to firms and do so till this day as a Management Consultant. That said, this articles is on the lower end of scale of all the fantastic articles published on this site. Full disclosure: I work at Strategy&. I am unhappy with the behaviour of the partners, but see a lot of potential in this deal if PwC enforce hard decisions to enable the great Strategy& partners to rebuild our business.

I want to highlight some points of yours that I agree with, but ultimately I wanted to focus on points I disagree with to conclude – with all the respect in the world I have for you all at Firmsconsulting – that this is not a well-informed article.

Let me start with two very major points you make that I agree with:

1- Booz sold out on it’s values and couldn’t make the tough and right decision to cut under-performing partners. Booz partners failed not only once, but twice (!) to invest in the business with the money from TWO buy-outs (Booz-Allen-Hamilton and PwC). This shows a highly warped view of how partners should act and is in antithesis to a co-owner of a firm who should be investing in his or her business. 2- PwC has bought financial option with Booz. It can analyse it, see if it likes what it sees and if it will eventually decide to invest further.

Let me now take issues with some of your other major points:

1- “Putting auditors together with strategy consultants leads to problems”. That may be, but this is not the intention, nor what is happening. PwC have a tremendous Deals team (M&A, Financial due diligence, carve-outs, PMI) and a tremendous implementation practice (PwC consulting). These are the teams we are now working closely with, and we definitely see the value in offering the strategy/design phase of the work, with PwC coming in to either complement our work with their Deals team or to implement it with PwC consulting.

2- “Consultants are constrained when there are audit conflicts and lose their independence”. I couldn’t agree more. The thing is, PwC has made the decision to pull Booz out of client who they Audit. Many clients have stated they will either work with PwC Audit or Strategy&. When they haven’t made the decision, PwC audit has pre-empted them. This has resulted in 20-30% loss of work on the Strategy& side, but we are rebuilding. We have removed the audit conflict constraint on our ability to offer impartial advice. That said, there are cases when CEO clients of ours have specifically demanded we remain consulting with them, despite having PwC as auditors because they hold us as trusted advisors. I can think of at least a dozen such cases for Fortune 100 clients.

3- “Some Strategy& partners want to preserve Booz by staffing Booz-only teams”. Quite the opposite. The bad behaviour we see is not that at all. It’s the Strategy& partners who staff teams with PwC consultants because they are cheap and charge them at Strategy& rates. Staffing managers have become aware of this and are now blocking many instances of this behaviour. On the positive side, joint PwC-Strategy& teams are learning more and more how to work with and complement each other. Clients see the value of our joint offer (mostly) and with time I hope the consulting industry will start recognising this as well.

4- “Hoarding of ideas from PwC”. We are making a lot of effort to introduce PwC to our platforms (Fit for growth, digital, capabilities driven strategy etc.). We are doing this by running joint training sessions, webinars and during engagements (e.g. I am working closely with PwC on my engagement right now and introducing the ‘capabilities-driven strategy’ concept to them). The bad behaviour we are trying to avoid is PwC partners posing as Strategy& partners and taking Strategy& intellectual capital (that they don’t understand and can’t possibly communicate or advice on correctly) to clients. This is bad for our clients because they don’t get the value they deserve and thus it will also be bad for us because in the long term our image will be tarnished.

5- “The objective should be to make Booz disappear into PwC”. What is the point of this Michael? Is it better to raise the giant that is PwC by a fraction, or to cull the fat in Booz and create a dynamic Strategy&? Don’t get me wrong – I still think we should be doing better, getting rid of selfish and under-performing partners etc. but we have excellence in this firm that goes up against MBB any day of the week – and a lot of the times wins. If we can cultivate that excellence, add a multitude of offerings to it (implementation, tax, audit, PMI etc.) we will definitely create something unique. It is going to be VERY hard and require a lot of tough choices that I believe PwC needs to push, because I don’t believe our current leadership will do it.

In summary, I think this article on Firmsconsulting regarding the PwC-Booz deal is not informed to the extent that it can comment on the current situation of the deal, nor the direction it is taking. Your values-driven perspective is insightful and the deal rationale analysis is mostly spot-on, but I think readers do not get much insight into the real ongoings of the deal from this article.

While I highly regard your articles, I will read at them with a more critical eye and hope they are driven more by insider facts and knowledge than this particular example.

This is one of the best articles I have ever read on the consulting industry giants and thought leaders. Masterfully crafted, well-reasoned, insightful and to the point. Thank you, Michael for such a great piece of writing.

This is one of the best articles I have ever read on the consulting industry giants and thought leaders. Masterfully crafted, well-reasoned, insightful and to the points. Thank you, Michael for such a great piece of writing.

Thanks for that question. It is a good question. Yes, we do have some severe limitations but manage those limitations so carefully that they become non-existent.

First, something is only a limitation when you push against the limits of your natural capacity. We actually do not push for a profit motive or excessive growth. So we only do studies where we can leverage our resources to get the best results. Many firms try to grow the number of studies they do and consultants they hire. We have no such desires at all. It is about doing the best possible work and if that means no growth in this side of the firm, then that is fine for us.

This is really about our values. We never make decisions based on budgets or profit motives. We routinely will decide what is best and then figure how to fund it. Firms that make decisions based on budget requirements will never be focused on doing what is best, since they are limited by accounting measures. This means we often incur losses but, we do it because we are building for the long-term, and taking losses in the short-term are perfectly acceptable if they are planned losses where the deployment of that lost capital leads to the creation of a useful asset in the long term.

Our values are very important. We will, and have, fired clients who do not meet our strict views on ethics.

Second, we are structured very differently from most firms. Most former senior partners take a sales and relationship role when they retire. They do this since they are very revenue obsessed. So, they hire more junior people to do the work while they focus on growth through relationships. We do not do that. You notice that in Firmsconsulting all the senior partners from McKinsey and BCG are client focused. You actually never see the more junior partners and employees. So, in our case, the most senior and capable individuals are focused on the studies and training. Our best people are focused on clients and we have no real sales system. We work almost entirely on word of mouth and, yes, we do miss some opportunities because of this, but we have very happy clients as well. I would rather miss a few opportunities than hurt a few clients’ chances.

None of the America Renewed studies were “sold.” We were always invited to do them.

Third, the type of work we do is almost 100% similar to what we would have done if we were still at the firm. Again, when most senior partners of BCG and McKinsey retire, they tend to take on more smaller studies with CEOs, where it is just them advising the CEOs. Now, they will obviously justify this as being more difficult than work done with full case teams and furthermore, they will claim this something McKinsey cannot do, which is why they are filling this gap in the market. That is not true and plain nonsense. It is marketing drivel from a lazy person who ate too much turkey and does not have the stamina to lead a team of hungry associates. Really, it takes serious effort to manage a case team. I am not saying there is no place for one-on-one CEO advisory services, but to say that it is better than the case team approach is flat-out-wrong. The reality is most retired partners usually too lazy to keep the pace of running teams intensely, checking work, hiring, training and so on. That is a very difficult role. Retired partners believe they have worked hard, and now need to benefit from their hard work, which usually means less work.

We, however, actually keep that McKinney-intensity of running teams and developing them aggressively around values and a very defined problem solving process. It is a conscientious decision.

So to summarize. We take on what we can do well and also stick to a careful and curated value system. We keep the most capable partners focused on studies and not sales, since we do not sell. Period. Finally, we are not yet so old and lazy that we will try to set up simple discussions with CEOs and call it strategy consulting. Big clients have big problems and it is naive to think that a simple discussion can fix it.

The point about firms making partners great is very interesting. I’m reminded in podcasts you talked how partners leave big strategy firms to find they can’t run projects on their own at the same level as they did while at firms – because of the networking and talent that big firms possess. In this respect, recalling your work on LAB, it’s high quality, I’m curious if Firmsconsulting is positioned differently and is still capable of running the projects at the same level as you did while at MBB.

It is important to note that since PwC, Deloitte, KPMG and E&Y are federations of legally separate businesses, there is no commonality in how they would manage this. Some regions will use very different approaches from others.

That said, there are actually no non-compete clauses in management consulting, at least not at the global partnerships like McKinsey and BCG. This because it is believed the firm makes the partner great and not vice-versa. At fragmented partnerships like PwC I would doubt they have them. There are also no restrictions on hiring staff once a partner leaves. He can take as many as he likes, though most do not do this to preserve the relationship.

A great read that shreds some light on the merger. My attempt to hear a critical assessment of the merger from a PwC partner failed: “I see only advantages” was the answer. On the talent retention, can you say how the contracts of partners work wrt leaving the firm and joining competitors? The question is based on my conversation with an HR lady from audit company that said one of their partners has left for other company, took a few members of the team with him, and, probably, a few clients. If you don’t mind sharing this information, how does a non-compete clause sound in partner contracts? Thanks